China has stepped up its regulatory onslaught against cryptocurrencies, forcing major bitcoin exchanges operating on the mainland to shut down and banning their executives from travelling outside the country.

State-owned media reported the travel ban on Monday, and a source close to one of the biggest exchanges, Huobi ,said its founder Li Lin was required to "report to the authorities and cooperate with their work at any time", which effectively means he is not allowed to leave China.

Beijing's harsh crackdown on bitcoin exchanges has taken the industry by surprise. In previous years, Chinese exchanges accounted for more than 90 per cent of all bitcoin trades, but the increased regulatory scrutiny over recent months has whittled that down to just over 10 per cent. This share is expected to drop further after the two biggest bitcoin exchanges said over the weekend they would close by the end of next month.

Other smaller exchanges will close sooner. While the price of bitcoin plunged by as much as 30 per cent last week to less than $US3000, it recovered over the weekend and is now trading above $US3800, as traders switched their focus to exchanges in Japan, South Korea and the US. Japan now accounts for more than half of all bitcoin trading activity.

"China was the country with the most favourable approach to bitcoin but it has switched very rapidly to become the most unfriendly country for the digital currency," said a major China-based bitcoin trader, who asked not to be named because it was too politically sensitive.

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"I'm not very optimistic about the future of bitcoin in China," he said. "Theoretically, [over-the-counter] trading can still take place but I think it will become harder and harder."

Industry insiders have traced the reversal of bitcoin's fortunes in China back to the government's decision in mid-July to set up a financial stability and development committee that reports directly to the State Council and is charged with managing risks in the finance sector.

"The clampdown fits into a broader set of efforts to lessen financial market risks perceived by Chinese policymakers," Martin Chorzempa, research fellow at the Peterson Institute for International Economics wrote in an article on Friday.

"China's leaders tend to emphasise stability among its top objectives, especially before consequential meetings like the upcoming 19th Party Congress in October, at which Xi [Jinping] hopes to further increase his power."

Blockchain creates a digital transaction ledger that is shared among a distributed network of computers. It cuts out the middle man, allowing transactions between any two parties on a network to be authenticated and recorded.

Blockchain is listed as a priority in the Chinese central government's current five-year plan that runs to 2020, and local authorities as well as big state-owned and private companies have begun rolling out pilot projects using the technology.

The People's Bank of China is even developing its own digital currency based on blockchain. An article in the central bank's newspaper written by Zhao Ziheng, who works for government think tank the Chinese Academy of Social Sciences said "private digital currencies have become a destabilising force in the economic system, forcing regulators to take strict measures", but that was different from "government-guided" digital currencies.

However, traders said a PBOC-issued digital currency would just be a new settlement tool for the Chinese yuan, not a currency like bitcoin. The whole idea behind bitcoin was to create a currency that was decentralised and could operate without the oversight of a central bank.

One executive who has invested in a number of bitcoin mines across China - which are essentially banks of computers that solve mathematical formulas to generate the digital currency -- is concerned he will be forced to move his operations.

The supercomputers which "mine" bitcoin are stored in warehouses where there is cheap electricity and a relatively cool climate. For a time, the mountainous areas in China's Sichuan province, with its underused hydro power plants, became a hub for miners.

Now those companies are looking to Central Asia, Iceland or North America.

"All of us didn't believe they would shut down the exchanges so we are preparing for the worst," said the executive.